Are you afraid of tying up all of your savings in an Airbnb investment? Or, do you wonder how to find money to invest beyond your first Airbnb?
If so, you need to listen to Episode 13 of the Host Coach Airbnb Podcast where we explain how to use the BRRRR method of investing (which has normally been used for long-term investing) to move your investment dollars in and out of properties AND generate rapid cyclical growth as an Airbnb investor!
After listening to this episode you will know how to use all the steps of BRRRR system - including our extra step of “Repurpose" to smoothly transition from buying a place to regaining your initial investment and then using that capital to invest in the next property.
Topics discussed in this episode:
- Why the concept of repurpose is critical to maximize cash flow when buying an Airbnb property
- 6 steps to follow to create a continuous circle of investment wealth
- How to recoup the money from your initial investment in your Airbnb
- The importance of the freedom component of financial freedom when making decisions as an Airbnb investor.
The BRRRR method of investing was popularized by the co-host of the BiggerPockets podcast, Mr. David Greene. As Danielle said, it's long been applied to long-term renting and BRRRR stands for Buy, Rehab, Rent, Eefinance, and Repeat. We've added an extra R in the middle - Repurpose. So let's unpack each of those steps.
You can't be an Airbnb investor until you make an investment. So step one is buy and buy and get the deal. A lot of times we talk about investing in real estate and you hear the term, "you make your money on the buy." I feel in short-term rental investing, you make your money on actually winning the property.
So, we're not often trying to get the property for $10,000 under asking price. In fact, we come in pretty aggressive once we've established a market that we want to be in and once we've selected a property that we think we'll make a great investment. We're aggressive in terms of getting that property under contract, so we'll come in maybe all cash or a little over asking, or reduce contingencies.
You can't make money on the property until you own it, until you list it, so get out and buy!
Step two is rehab. Rehabbing a property can be a small or a large step depending on the property that you buy, its condition and your bank account. Remember from previous episodes, people will stay in imperfect places.
So if you have a small budget, buy a place, put in as nice of furniture as you can, paint the accent walls, change out handles on cabinets, and then let that property list and cashflow to reinvest into further improvements. If for some reason you have a lot of money to spend and just want to get it knocked out right away, then you can do a quick renovation, maybe a bathroom or a kitchen facelift, and then list your property.
Once you've decorated your house, you've painted, maybe you've done your updates, maybe you're waiting and saving for those updates, be sure to capture your listing's best look with HDR photography, which is high dynamic range photography. It is the best $300 you can spend on your Airbnb property because it's going to make it stand out when you're on the Airbnb platform. It's like online dating. You want to put those really amazing, crisp life-like photos to grab attention and secure the booking so you can start cash flowing.
And then the R that we've added to the BRRRR method is Repurpose. And repurpose is really a mindset that applies to both buying and rehab.
As repurpose applies to purchasing, we think about markets and properties that we can repurpose. Meaning it was once a family getaway location, and now we are repurposing it into a commercial, fully-occupied Airbnb property.
This comes into play with a beach property where it's already being used as a rental. You can get better bang for your buck if you find a market in a property that's not currently being used as a rental. So we're repurposing it from just a family getaway house into a full-occupancy Airbnb rental. The business mindset is also then related to full occupancy. We want to be thinking about this property and repurposing it into a full 95% occupancy rental property and doing what it takes in terms of pricing and policies to achieve that 95% occupancy.
The property you purchase doesn't have to be a previous rental property or a getaway place. We have purchased at least one full-time home. Admittedly, it did look like a cabin and was in the woods. We repurposed it into an Airbnb property.
The next step is rent! Revenue is paid by guests as rent, and the great news is that the Airbnb platform auto bills your guests and deposits the money directly into your bank account the day after they check in.
This means you get to skip the hassle of long-term rental investors needing to nudge tenants for monthly rent payments. We have had long-term tenants. We have had to ask people to pay their rent. We've had people not pay their rent for months. We've had to evict people. I do not recommend it!
As an Airbnb investor, your cash flow is automated by Airbnb and these new funds flow into your account multiple times a month. You also have the ability to change your pricing to influence occupancy. Unlike long-term investors who have to wait to increase the rent when there's a new renter coming in, or make a contractual annual percentage increase. So having that flexibility, having levers to pull, as Culin likes to say, gives you the ability to make cash flow happen when things are a little bit slow.
Next up is my favorite - Refinance. How do we get our capital back out of the property? As I mentioned, we often buy in cash, but it doesn't have to be done that way. If you did buy with a bank loan and you've gone through the process of refurnishing and rehabbing and repurposing this property, you are forcing value into the property.
As you get the property on the Airbnb platform and you start renting and have a documented rental history, you now have a cash flow that you can go back to your bank and get a refinance loan. You can get your capital back out at a higher valuation! You may be a lower loan to value ratio, but you can usually get most, if not all of your capital back out to through a new loan at the higher market value for the property since you've improved it. Then you can deploy that capital elsewhere.
An example of this is, I know we talk about this place all the time on this podcast, but in the place that we just finished on top of the mountain, we had the opportunity to either finish it quickly and just do touch ups, redo flooring and have turnkey two floors of a cabin. But Culin had the thought of if we refinish the basement and make it livable and lovely, we've added an entire floor.
We added a bedroom, we added a sauna, and a laundry room. And by doing so, the plan is when we go to refinance that we will actually get more than we put in out of that refinancing because we've vastly improved the space. We didn't just "make it pretty," we made the living space 30% larger and added another bedroom.
The final step, which is my favorite step, is Repeat. This step encourages you to take your recovered capital and reinvest it in another Airbnb property. That's when the cycle starts again! Buy, rehab, repurpose, rent, refinance. We aim to refinance and reinvest our capital in two cabins a year. That has been our going rate for a number of years.
However, that worked when our son was a lot younger, but now that he's in high school and there are sporting events and scouting events and all these different things. We realize we only have three and a half years left with him in the house, we've scaled back to one property a year because we want to make sure we have time to spend with him and that we're present before he leaves the nest.
I bring this up because you should repeat at the frequency that works for your life. Remember, we're not just chasing finances. We're not just chasing cash flow. We're chasing financial freedom. So don't lose sight of the freedom part. You need freedom to enjoy life, your family, your friends, and then recharge before you invest again.
So there you have it. You now know how to use all the steps of the BRRRR system, including our extra step of repurpose to smoothly transition from buying a place to regaining your initial cash investment while using that capital to reinvest in your next property. It's the circle of wealth!
Keep listening to the Host Coach show. We're here every Tuesday to share all of the methods, tips, tools needed to help you create financial freedom through Airbnb investing.
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